Securities Act Registration No. 333-00227
Investment Company Act Reg. No. 811-7493
_________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. __ [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 1 [X]
(Check appropriate box or boxes.)
______________________
THE HENNESSY FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, CA 94945
(Address of Principal Executive Offices) (Zip Code)
(800) 966-4354
(Registrant's Telephone Number, including Area Code)
Copy to:
Neil J. Hennessy
The Hennessy Management Co., L.P.
The Courtyard Square Richard L. Teigen
750 Grant Avenue Foley & Lardner
Suite 100 777 East Wisconsin Avenue
Novato, CA 94945 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
In accordance with Rule 24f-2(a)(1) under the Investment Company Act of
1940, the Registrant declares that an indefinite number or amount of
shares of its common stock, $0.0001 par value, is being registered by this
Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission acting
pursuant to said Section 8(a) may determine.
__________________________________________________________________________
The Exhibit Index is located at page __ of the sequential numbering
system.
Page 1 of __ Pages
<PAGE>
THE HENNESSY FUNDS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and
the Statement of Additional Information of the responses to the Items of
Parts A and B of Form N-1A.)
Caption or Subheading in
Prospectus or Statement of
Item No. on Form N-1A Additional Information
PART A -INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis EXPENSES
3. Financial Highlights PERFORMANCE INFORMATION
4. General Description of OUR INVESTMENT STRATEGY;
Registrant PAST PERFORMANCE; OUR
INVESTMENT RESTRICTIONS
5. Management of the Fund OUR MANAGEMENT; BROKERAGE
TRANSACTIONS; GENERAL
INFORMATION
5A. Management's Discussion of *
Fund Performance
6. Capital Stock and Other REPORTS; CAPITAL GAINS
Securities DISTRIBUTIONS AND TAXES;
GENERAL INFORMATION
7. Purchase of Securities Being HOW WE DETERMINE OUR SHARE
Offered PRICE; PURCHASING SHARES;
DIVIDEND REINVESTMENT;
RETIREMENT PLANS
8. Redemption or Repurchase REDEMPTIONS
9. Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and *
History
13. Investment Objectives and Investment Restrictions;
Policies Investment Considerations
14. Management of the Fund Directors and Officers of
the Corporation
15. Control Persons and Directors and Officers of
Principal Holders of the Corporation; Ownership
Securities of Management and Principal
Shareholders; Investment
Adviser, Administrator,
Custodian, Transfer Agent
and Accounting Services
Agent
16. Investment Advisory and Investment Adviser,
Other Services Administrator, Custodian,
Transfer Agent and Account
Services Agent; Independent
Auditors
17. Brokerage Allocation Allocation of Portfolio
Brokerage
18. Capital Stock and Other Included in Prospectus
Securities under "GENERAL INFORMATION"
19. Purchase, Redemption and Included in Prospectus
Pricing of Securities Being under "HOW WE DETERMINE OUR
Offered SHARE PRICE"; "PURCHASING
SHARES"; "REDEMPTIONS";
Determination of Net Asset
Value; Distribution of
Shares; Systematic
Withdrawal Plan
20. Tax Status Taxes
21. Underwriters *
22. Calculations of Performance Performance Information
Data
23. Financial Statements Independent Auditors'
Report; Statement of Assets
and Liabilities; Notes to
Financial Statement
_______________________
* Answer negative or inapplicable
<PAGE>
___________________________
HENNESSY BALANCED
FUND
___________________________
March 8, 1996
THE HENNESSY FUNDS, INC.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, California 94945
Telephone: (800) 966-4354
(FUND INFORMATION)
(800) 261-6950 (ACCOUNT INFORMATION)
THE HENNESSY FUNDS, INC.
is an open end, non-diversified
management investment company
consisting of a single portfolio, the
Hennessy Balanced Fund ("We" or the
"Fund"). Our investment objective is
capital appreciation and current
income.
______________________________ ______________________________________
HENNESSY BALANCED THESE SECURITIES HAVE NOT BEEN APPROVED
FUND OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE
______________________________ SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_______________________________________
This Prospectus sets forth concisely
the information about the Fund that
prospective investors should know
before investing. Please read this
Prospectus and retain it for future
reference. Additional information
about the Fund has been filed with the
Securities and Exchange Commission in
the form of a Statement of Additional
Information, dated March 8, 1996, which
is incorporated by reference in the
Prospectus. Copies of the Statement of
Additional Information will be provided
without charge upon request to the Fund
at the above address or telephone
number.
1. EXPENSES
The following information is provided in order to assist you in
understanding the various costs and expenses that, as an investor in the
Fund, you will bear directly or indirectly. It should not be considered
to be a representation of past or future expenses. Actual expenses may be
greater or lesser than those shown. "Annual Operating Expenses" are based
on the estimated amount set forth in the table. The example assumes a 5%
annual rate of return pursuant to requirements of the Securities and
Exchange Commission. The hypothetical rate of return is not intended to
be representative of past or future performance of the Fund.
Shareholder Transaction Expenses
Maximum sales load imposed on purchases . . . . . . . . None
Maximum sales load imposed on reinvested dividends . . None
Deferred sales load . . . . . . . . . . . . . . . . . . None
Redemption fee . . . . . . . . . . . . . . . . . . . None (1)
Exchange fee . . . . . . . . . . . . . . . . . . . . . None
Annual Operating Expenses
(as a percentage of average net assets)
Management fees (after fee waivers) . . . . . . . . . 0.10%(2)
12b-1 fees . . . . . . . . . . . . . . . . . . . . . 0.75%(2)
Other expenses . . . . . . . . . . . . . . . . . . . . 1.05%
Total fund operating expenses (after fee waivers) . . 1.90%(2)
(1) A fee of $10.00 is charged for each wire redemption.
(2) The maximum management fee is 0.85% per annum of the Fund's
average net assets. The investment adviser to the Fund has
voluntarily agreed to waive its management fee to the extent
necessary to ensure that combined management fees and 12b-1 fees
do not exceed 0.85% per annum of the Fund's average net assets.
The maximum level of distribution expenses is 0.75% per annum of
the Fund's average net assets. See "Purchases" for further
information. The distribution expenses for long-term
shareholders may total more than the maximum sales charge that
would have been permissible if imposed entirely as an initial
sales charge. Absent fee waivers, total fund operating expenses
would be 2.65% per annum of the Fund's average net assets.
Example
1 Year 3 Years
You would pay the following expenses on a
$1,000 investment, assuming (1) a 5% $19 $60
annual return and (2) redemption at the
end of each time period: . . . . . . . .
2. OUR INVESTMENT STRATEGY
Our investment objective is capital appreciation and current
income. We utilize a conservative investment strategy which results in
our continuously investing approximately one-half of our portfolio in U.S.
Treasury securities having a remaining maturity of approximately 1 year
and the other half of our portfolio in the ten highest yielding common
stocks in the Dow Jones Industrial Average ("DJIA").* By utilizing this
investment strategy, we seek to achieve total returns that in the long run
will be substantially similar to that of the DJIA but with less risk and
volatility.
______________
* The Dow Jones Industrial Average is the property of Dow Jones &
Company, Inc. Dow Jones & Company, Inc. is not affiliated with the Fund,
The Hennessy Management Co., L.P., the Fund's investment adviser (the
"Adviser"), or Edward J. Hennessy, Inc., the general partner to the
Adviser. Dow Jones & Company, Inc. has not participated in any way in the
creation of the Fund or in the selection of stocks included in the Fund
and has not approved any information included herein relating thereto.
Around the first and fifteenth of each month, the Adviser will
determine the ten highest yielding common stocks in the DJIA. The Adviser
will make this determination by annualizing the last quarterly or semi-
annual ordinary dividend declared on each common stock included in the
DJIA and dividing the result by the market value of the common stock on
the last business day preceding the date of determination. All purchases
of common stocks following such determination until the next determination
will be of the ten highest yielding common stocks so determined. Unless
we need to sell common stocks to fund redemption requests as hereinafter
discussed, we will hold for approximately one year any common stocks
purchased including common stocks that are no longer one of the ten
highest yielding common stocks in the DJIA.
When we purchase common stock, we will also purchase an
approximately equal amount of U.S. Treasury securities having a remaining
maturity of approximately one year. (U.S. Treasury securities are backed
by the full faith and credit of the U.S. Treasury. U.S. Treasury
securities differ only in their interest rates, maturities and dates of
issuance. Treasury bills have maturities of one year or less. Treasury
notes have maturities of one to ten years and Treasury bonds generally
have maturities of greater than ten years at the date of issuance.)
Consequently approximately half of our portfolio will at all times consist
of U.S. Treasury securities.
We rebalance our stock investments after they have been held for
one year. Any stock which is no longer one of the ten highest yielding
common stocks will be sold and replaced with stocks which are.
Additionally a portion of the stocks which remain in the portfolio may be
sold such that after the rebalancing is completed, the rebalanced portion
of our portfolio will consist of 50% U.S. Treasury securities and 50% of
the ten highest yielding common stocks in the DJIA (5% for each common
stock). We anticipate rebalancing at the beginning of every month with
respect to the portfolio securities purchased one year earlier. For
example, a rebalancing effected at the beginning of February will relate
to portfolio securities purchased in January of the preceding calendar
year. Rebalancing our common stock investments more frequently would
increase transaction costs.
In an effort to minimize transaction costs, we may accumulate
funds and make purchases in larger blocks to avoid odd lot transactions.
We will invest such accumulated funds in money market instruments such as
U.S. Treasury securities with a remaining maturity of one year or less,
repurchase agreements, commercial paper and other cash equivalents rated
A-1 or A-2 by Standard & Poor's Corporation ("S&P") or Prime-1 or Prime-2
by Moody's Investors Service, Inc. ("Moody's"), including commercial paper
master notes (which are demand instruments bearing interest at rates which
are fixed to known lending rates and automatically adjusted when such
lending rates change) of issuers whose commercial paper is rated A-1 or A-
2 by S&P or Prime-1 or Prime-2 by Moody's. We may also invest in
securities issued by other investment companies that invest in high
quality, short-term debt securities (i.e., money market instruments). In
addition to the advisory fees and other expenses we bear directly in
connection with our own operations, as a shareholder of another investment
company, we would bear our pro rata portion of the other investment
company's advisory fees and other expenses, and such fees and other
expenses will be borne indirectly by our shareholders.
When funding redemption requests, we will first utilize any
accumulated funds described above. If it is necessary for us to sell
portfolio securities to meet redemption requests, we will endeavor to
obtain approximately one-half of the necessary proceeds from the sale of
U.S. Treasury securities and the remainder from the sale of common stocks
in proportion to their respective percentages of our total portfolio of
common stocks. Again we may vary the percentage of each issue of common
stock sold to avoid odd lot transactions thereby reducing total
transaction costs.
Our investment allocations may be affected by the fact that we
must meet the diversification requirements of the Internal Revenue Code
and do not concentrate our investments. See "Our Investment Restriction."
Additionally, we will not invest more than 5% of our total assets in the
common stock of any issuer that derives more than 15% of its revenue from
securities-related activities, which limitation may affect our investment
allocations.
3. OUR INVESTMENT RESTRICTIONS
We have adopted certain fundamental investment restrictions that
may be changed only with the approval of a majority of our outstanding
shares including the following restrictions:
(1) We will not purchase the securities of any issuer if the
purchase would cause more than 5% of the value of our total
assets to be invested in securities of such issuer (except
securities of the U.S. government or any agency or
instrumentality thereof), or purchase more than 10% of the
outstanding voting securities of any one issuer, except
that up to 50% of our total assets may be invested without
regard to these limitations. As such we are classified as
a non-diversified investment company under the Investment
Company Act of 1940. A non-diversified portfolio may be
more volatile than a diversified portfolio.
(2) We will not invest 25% or more of our total assets at the
time of purchase in securities of issuers whose principal
business activities are in the same industry.
A list of our policies and restrictions, both fundamental and
nonfundamental, is set forth in the Statement of Additional Information.
In order to provide a degree of flexibility, our investment objective, as
well as other policies which are not deemed fundamental, may be modified
by our Board of Directors without shareholder approval. Any change in our
investment objective may result in our having an investment objective
different from the investment objective which a shareholder considered
appropriate at the time of investment in the Fund. However we will not
change our investment objective without sending written notice to
shareholders at least 30 days in advance of any such change.
4. REPORTS
As a shareholder of the Fund you will be provided at least semi-
annually with a report showing the Fund's portfolio and other information.
Annually, after the close of our June 30 fiscal year, you will be provided
with an annual report containing audited financial statements.
An individual account statement will be sent to you by Firstar
Trust Company after each purchase, including reinvestment of dividends or
redemption of our shares. You will also receive an annual statement after
the end of the calendar year listing all your transactions in our shares
during the year and a quarterly statement following the end of each
calendar quarter listing year-to-date transactions.
If you have questions about your account you may call Firstar
Trust Company at (800) 261-6950. If you have general questions about the
Fund or want more information, you may call us at (800) 966-4354 or write
to us at THE HENNESSY FUNDS, INC., The Courtyard Square, 750 Grant Avenue,
Suite 100, Novato, California 94945, Attention: Corporate Secretary.
5. OUR MANAGEMENT
As a Maryland corporation, our business and affairs are managed
by our Board of Directors. We have entered into an investment advisory
agreement (the "Agreement") with The Hennessy Management Co., L.P. (the
"Adviser"), The Courtyard Square, 750 Grant Avenue, Suite 100, Novato,
California 94945, under which the Adviser furnishes continuous investment
advisory services and management to us. The Adviser is a California
limited partnership organized on October 24, 1995 for the purpose of
becoming our investment adviser. The general partner of the Adviser is
Edward J. Hennessy, Incorporated ("Hennessy"). Hennessy is a registered
broker-dealer and investment adviser. Hennessy was organized in 1989 and
is controlled by Neil J. Hennessy, who is a director and the President of
Hennessy. Neither the Adviser nor Hennessy have prior experience managing
the investment portfolio of a registered investment company. Hennessy,
however, has served as a general partner of investment partnerships which
invest substantially all of their assets in the ten highest yielding
common stocks of the DJIA.
Neil J. Hennessy is primarily responsible for the day-to-day
management of our investment portfolio. He has held this responsibility
since we commenced operations. Mr. Hennessy also has served as our
President and a member of our Board of Directors since our organization.
Mr. Hennessy has been President of Hennessy since 1989.
The Adviser supervises and manages our investment portfolio and,
subject to such policies as our Board of Directors may determine, directs
the purchase or sale of investment securities in the day-to-day
management of the Fund. Under the Agreement, the Adviser, at its own
expense and without separate reimbursement from us, furnishes office space
and all necessary office facilities, equipment and executive personnel for
managing the Fund and maintaining our organization; bears all of our sales
and promotional expenses, other than expenses incurred in complying with
the laws regulating the issue or sale of securities; and pays salaries and
fees of all of our officers and directors (except the fees paid to our
disinterested directors as such term is defined under the Investment
Company Act of 1940). For the foregoing, the Adviser receives a monthly
fee at the annual rate of 0.85% of the daily net assets of the Fund. The
rate of the annual advisory fee is higher than that paid by most mutual
funds.
We have adopted a Rule 12b-1 Plan (the "Plan") which authorizes
payments by us in connection with the distribution of our shares at an
annual rate, as determined from time to time by our Board of Directors, of
up to 0.75% of the Fund's average daily net assets. Payments made
pursuant to the Plan may only be used to pay distribution expenses
actually incurred. Payments incurred in one plan year may be carried over
into future plan years. Amounts paid under the Plan by us may be spent on
any activities or expenses primarily intended to result in the sale of our
shares, including but not limited to, advertising, compensation for sales
and marketing activities of financial institutions and others such as
dealers and distributors, shareholder account servicing, the printing and
mailing of prospectuses to other than current shareholders and the
printing and mailing of sales literature. The Plan permits us to employ a
distributor of its shares, in which event payments under the Plan will be
made to the distributor and may be spent by the distributor on any
activities or expenses primarily intended to result in the sale of our
shares, including but not limited to, compensation to, and expenses
(including overhead and telephone expenses) of, employees of the
distributor who engage in or support distribution of our shares, printing
of prospectuses and reports for other than existing shareholders,
advertising and preparation and distribution of sales literature.
Allocation of overhead (rent, utilities, etc.) and salaries will be based
on the percentage of utilization in, and time devoted to, distribution
activities. Initially all payments under the Plan will be made to the
Adviser who as indicated above directly bears all sales and promotional
expenses of the Fund, other than expenses incurred in complying with laws
regulating the issue or sale of securities. (We indirectly bear sales and
promotional expenses to the extent we make payments under the Plan.) The
Adviser has voluntarily agreed to waive its investment advisory fee to the
extent necessary to ensure that combined investment advisory fees and 12b-
1 fees do not exceed 0.85% of the Fund's average net assets. The Adviser
has entered into an agreement with Hennessy pursuant to which it will pay
Hennessy an amount equal to 1% of the net asset value of all our shares
sold other than shares sold pursuant to dividend reinvestments. This
agreement provides that Hennessy must repay any such fees with respect to
shares redeemed within one month after the date of the original purchase
other than shares redeemed as a result of the death or disability of the
shareholder. Such payments to Hennessy are a permitted expenditure under
the Plan.
We will pay all of our expenses not assumed by the Adviser,
including, but not limited to, the costs of preparing and printing our
registration statements required under the Securities Act of 1933 and the
Investment Company Act of 1940 and any amendments thereto, the expenses of
registering our shares with the Securities and Exchange Commission and in
the various states, the printing and distribution cost of prospectuses
mailed to existing shareholders, the cost of director and officer
liability insurance, reports to shareholders, reports to government
authorities and proxy statements, interest charges, brokerage commissions,
and expenses incurred in connection with portfolio transactions. We will
also pay the fees of our directors who are not officers, salaries of
administrative and clerical personnel, association membership dues,
auditing and accounting services, fees and expenses of any custodian or
trustees having custody of our assets, expenses of calculating the net
asset value and repurchasing and redeeming shares, and charges and
expenses of dividend disbursing agents, registrars, and share transfer
agents, including the cost of keeping all necessary shareholder records
and accounts and handling any problems relating thereto.
We also have entered into an administration agreement (the
"Administration Agreement") with Firstar Trust Company (the
"Administrator"), 615 East Michigan Street, Milwaukee, Wisconsin 53202.
Under the Administration Agreement, the Administrator maintains the books,
accounts and other documents required by the Act, responds to shareholder
inquiries, prepares our financial statements and tax returns, prepares
certain reports and filings with the Securities and Exchange Commission
and with state Blue Sky authorities, furnishes statistical and research
data, clerical, accounting and bookkeeping services and stationery and
office supplies, keeps and maintains our financial and accounting records
and generally assists in all aspects of our operations. The
Administrator, at its own expense and without reimbursement from us,
furnishes office space and all necessary office facilities, equipment and
executive personnel for performing the services required to be performed
by it under the Administration Agreement. For the foregoing, the
Administrator receives from us a fee, paid monthly, at an annual rate of
.05% of the first $100,000,000 of our average net assets, .04% of the next
$400,000,000 of our average net assets, and .03% of our net assets in
excess of $500,000,000. Notwithstanding the foregoing, the
Administrator's minimum annual fee is $30,000.
Firstar Trust Company also provides custodial, transfer agency
and accounting services for us. Information regarding the fees payable by
us to Firstar Trust Company for these services is provided in the
Statement of Additional Information.
6. HOW WE DETERMINE OUR SHARE PRICE
Our net asset value (or "price") per share is determined by
dividing the total value of our investments and other assets less any
liabilities, by the number of our outstanding shares. The net asset value
per share is determined once daily on each day that the New York Stock
Exchange is open, as of the close of regular trading on the Exchange
(normally 3:00 p.m. Central time). Purchase orders for our shares
accepted or shares tendered for redemption prior to the close of regular
trading on a day the New York Stock Exchange is open for trading will be
valued as of the close of trading, and purchase orders accepted and shares
tendered for redemption after that time will be valued as of the close of
regular trading on the next trading day.
Our common stock investments are valued at the last quoted sales
price on the day the valuation is made utilizing price information taken
from the New York Stock Exchange where the security is primarily traded.
Securities which are not traded on the valuation date are valued at the
most recent bid prices. Debt securities are valued at the latest bid
prices furnished by independent pricing services. Other assets are valued
at fair value as determined in good faith by the Adviser in accordance
with procedures approved by the Board of Directors of the Fund. Short-
term instruments (those with remaining maturities of 60 days or less) are
valued at amortized cost, which approximates market value.
7. PURCHASING SHARES
BY MAIL. Please complete and sign the New Account Application
form included with this Prospectus and send it, together with your check
or money order ($1000 minimum), made payable to Hennessy Balanced Fund,
TO: THE HENNESSY FUNDS, INC., c/o /Firstar Trust Company, P. O. Box 701,
Milwaukee, Wisconsin 53201-0701. Note: A different procedure is used for
establishing Individual Retirement Accounts. Please call Firstar Trust
Company at (800) 261-6950 for details. All purchases must be made in U.S.
dollars and checks must be drawn on U.S. banks. No cash will be accepted.
Firstar Trust Company will charge a $20 fee against a shareholder's
account for any check returned to it for insufficient funds. The
shareholder will also be responsible for any losses suffered by us as a
result.
BY OVERNIGHT OR EXPRESS MAIL. Please use the following address
to insure proper delivery: Firstar Trust Company, Mutual Fund Services,
3rd Floor, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
BY WIRE. To establish a new account by wire please first call
Firstar Trust Company, (800) 261-6950, to advise it of the investment and
the dollar amount. This will ensure prompt and accurate handling of your
investment. A completed New Account Application form must also be sent to
us at the address above immediately after your investment is made so the
necessary remaining information can be recorded to your account. Your
purchase request should be wired through the Federal Reserve Bank as
follows:
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA Number 075000022
For credit to Firstar Trust M.F.S.
Account Number 112-952-137
For further credit to Hennessy Balanced Fund
(Your account name and account number)
ADDITIONAL INVESTMENTS. You may add to your account at any time
by purchasing shares by mail (minimum $100) or by wire (minimum $100)
according to the aforementioned wiring instructions. You must notify
Firstar Trust Company at (800) 261-6950 prior to sending your wire. A
remittance form which is attached to your individual account statement
should accompany any investments made through the mail, when possible.
All purchase requests must include your account registration number in
order to assure that your funds are credited properly.
BY TELEPHONE. By using our telephone purchase option you may
move money from your bank account to your Fund account at your request.
Only bank accounts held at domestic financial institutions that are
Automated Clearing House (ACH) members may be used for telephone
transactions. To have our shares purchased at the net asset value
determined as of the close of regular trading on a given date, Firstar
Trust Company must receive both your purchase order and payment by
Electronic Funds Transfer through the ACH System before the close of
regular trading on such date. Most transfers are completed within three
business days. You may not use telephone transactions for initial
purchases of our shares. The minimum amount that can be transferred by
telephone is $100.
AUTOMATIC INVESTMENT. If you choose the Automatic Investment
option, you may move money from your bank account to your Fund account on
the schedule (e.g., monthly, bimonthly (every other month), quarterly or
yearly) you select and may be in any amount subject to a $100 minimum.
You may establish this option and the telephone purchase option by
completing the appropriate section of the New Account Application. Please
call Firstar Trust Company at (800) 261-6950 if you have questions.
Please wait three weeks before using the service.
You pay no sales commissions when you purchase our shares, so
all of your investment is used to purchase shares. All shares purchased
will be credited to your account and confirmed by a statement mailed to
your address. We do not issue stock certificates for shares purchased.
Since certificates are not issued, you are relieved of the responsibility
for safekeeping of certificates and the need to deliver them upon
redemption. You may also invest in the Fund by purchasing shares through
a registered broker-dealer, who may charge you a fee, either at the time
of purchase or redemption. The fee, if charged, is retained by the
broker-dealer and not remitted to us or the Adviser. You will not be
charged a fee when you purchase our shares through Hennessy. We may
accept telephone orders from broker-dealers who we have previously
approved. It is the responsibility of the registered broker-dealer to
promptly remit purchase and redemption orders to Firstar Trust Company.
ALL APPLICATIONS ARE SUBJECT TO ACCEPTANCE BY US, AND ARE NOT
BINDING UNTIL SO ACCEPTED. WE RESERVE THE RIGHT TO REJECT APPLICATIONS
IN WHOLE OR IN PART. The minimum purchase amounts set forth above are
subject to change at any time and may be waived for purchases by
retirement plans, or the Adviser's or Hennessy's employees and their
family members. You will be advised at least 30 days in advance of any
increases in such minimum amounts and our prospectus will be appropriately
supplemented. Applications without Social Security or Tax Identification
numbers will not be accepted.
8. REDEMPTIONS
At any time during normal business hours you may request us to
redeem your shares in whole or in part. Written redemption requests must
be directed to THE HENNESSY FUNDS, INC., c/o Firstar Trust Company, P.O.
Box 701, Milwaukee, Wisconsin 53201-0701. If a redemption request is
inadvertently sent to us at our corporate address, it will be forwarded to
Firstar Trust Company, but the effective date of redemption will be
delayed until the request is received by Firstar Trust Company. Requests
for redemption which are subject to any special conditions or which
specify an effective date other than as provided herein cannot be honored.
A redemption request must be received in "Good Order" by Firstar
Trust Company for the request to be processed. "Good Order" means the
request for redemption must include:
- Your letter of instruction specifying our name and either the number
of shares or the dollar amount of shares to be redeemed. The letter
of instruction must be signed by all registered shareholders exactly
as the shares are registered and must include your account
registration number and the additional requirements listed below that
apply to the particular account.
Type of Registration Requirements
Individual, Joint Redemption request signed
Tenants, Sole by all person(s) required
Proprietorship, Custodial to sign for the account,
(Uniform Gift To Minors exactly as it is
Act), General Partners registered.
Corporations, Redemption request and a
Associations corporate resolution,
signed by person(s)
required to sign for the
account, accompanied by
signature guarantee(s).
Trusts Redemption request signed
by the trustee(s), with a
signature guarantee. (If
the Trustee's name is not
registered on the
account, a copy of the
trust document certified
within the last 60 days
is also required).
- Signature guarantees if proceeds of redemption are to be sent by wire
transfer, to a person other than the registered holder, to an address
other than the address of record, and if a redemption request
includes a change of address. Transfers of shares also require
signature guarantees. Signature guarantees may be obtained from any
commercial bank or trust company in the United States or a member of
the New York Stock Exchange and some savings and loan associations.
If you have an IRA, you must indicate on your redemption request whether
or not to withhold federal income tax. Redemption requests not indicating
an election to have federal tax withheld will be subject to withholding.
If you are uncertain of the redemption requirements, please contact, in
advance, Firstar Trust Company.
The redemption price is the next determined net asset value
after Firstar Trust Company receives a redemption request in "Good Order".
The amount paid will depend on the market value of the investments in our
portfolio at the time of determination of net asset value, and may be more
or less than the cost of the shares redeemed. Payment for shares redeemed
will be mailed to you typically within one or two days, but no later than
the seventh day after receipt by Firstar Trust Company of the redemption
request in "Good Order" unless we are requested to redeem shares for which
we have not yet received good payment (e.g. cash, bank money order or
certified check on a U.S. bank.) In such event we may delay the mailing
of a redemption check until such time as we have assured ourself that good
payment for the purchase price of the shares has been collected which may
take up to 12 days or more. Wire transfers may be arranged through
Firstar Trust Company, which will assess a $10.00 wiring charge against
your account.
You may redeem our shares by telephone. To redeem shares by
telephone, you must check the appropriate box on the New Account
Application (as we do not make this feature available to shareholders
automatically). Once this feature has been requested, you may redeem
shares by phoning Firstar Trust Company at (800) 261-6950 and giving the
account name, account number and either the number of shares or the dollar
amount to be redeemed. For your protection, you may be asked to give the
social security number or tax identification number listed on the account
as further verification. Proceeds redeemed by telephone will be mailed or
wired only to your address or bank of record as shown on the records of
Firstar Trust Company. Telephone redemptions must be in amounts of $1,000
or more. If the proceeds are sent by wire, a $10.00 wire fee will apply.
In order to arrange for telephone redemptions after a Fund
account has been opened or to change the bank, account or address
designated to receive redemption proceeds, you must send a written request
to Firstar Trust Company. The request must be signed by each registered
holder of the account with the signatures guaranteed by a commercial bank
or trust company in the United States, a member firm of the New York Stock
Exchange or other eligible guarantor institution. Further documentation
may be requested from corporations, executors, administrators, trustees
and guardians.
We reserve the right to refuse a telephone redemption if we
believe it is advisable to do so. Procedures for redeeming our shares by
telephone may be modified or terminated by us at any time. Neither the
Fund nor Firstar Trust Company will be liable for following instructions
for telephone redemption transactions which they reasonably believe to be
genuine, provided reasonable procedures are used to confirm the
genuineness of the telephone instructions, but may be liable for
unauthorized transactions if they fail to follow such procedures. These
procedures include requiring you to provide some form of personal
identification prior to acting upon your telephone instructions and
recording all telephone calls.
You should be aware that during periods of substantial economic
or market change, telephone or wire redemptions may be difficult to
implement. If you are unable to contact Firstar Trust Company by
telephone, you may redeem shares by delivering the redemption request to
Firstar Trust Company by mail as described above.
If you select our systematic withdrawal option, you may move
money automatically from your Fund account to your bank account according
to the schedule you select. The systematic withdrawal option may be in
any amount subject to a $100 minimum. To select the systematic withdrawal
option you must check the appropriate box on the New Account Application.
We reserve the right to redeem the shares held in any account if
at the time of any transfer or redemption of Fund shares in the account,
the value of the remaining shares in the account falls below $1000. You
will be notified in writing that the value of your account is less than
the minimum and allowed at least 60 days to make an additional investment.
The receipt of proceeds from the redemption of shares held in an
Individual Retirement Account ("IRA") will constitute a taxable
distribution of benefits from the IRA unless a qualifying rollover
contribution is made. Involuntary redemptions will not be made because
the value of shares in an account falls below $1000 solely because of a
decline in our net asset value.
Your right to redeem our shares will be suspended and your right
to payment postponed for more than seven days for any period during which
the New York Stock Exchange is closed because of financial conditions or
any other extraordinary reason and may be suspended for any period during
which (a) trading on the New York Stock Exchange is restricted pursuant to
rules and regulations of the Securities and Exchange Commission, (b) the
Securities and Exchange Commission has by order permitted such suspension
or (c) such emergency, as defined by rules and regulations of the
Securities and Exchange Commission, exists as a result of which it is not
reasonably practicable for the Fund to dispose of its securities or fairly
to determine the value of its net assets.
9. DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
We intend to distribute quarterly in April, July, October and
December any net investment income and annually in December any net
realized capital gains to shareholders. Dividend and capital gains
distributions may be automatically reinvested or received in cash.
We intend to continue to qualify for taxation as a "regulated
investment company" under the Internal Revenue Code so that we will not be
subject to federal income tax to the extent our income is distributed to
shareholders. Dividends paid by us from net investment income and net
short-term capital gains, whether received in cash or reinvested in
additional shares, will be taxable to shareholders as ordinary income.
Distributions paid by us from long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as long-term capital
gains, regardless of the length of time you have owned our shares.
Capital gains distributions are made when we realize net capital gains on
sales of portfolio securities during the year. We do not seek to realize
any particular amount of capital gains during a year; rather, realized
gains are a by-product of portfolio management activities. Consequently,
capital gains distributions may be expected to vary considerably from year
to year; there will be no capital gains distributions in years when we
realize net capital losses.
Note that if you accept capital gains distributions in cash,
instead of reinvesting them in additional shares, you are in effect
reducing the capital at work for you in the Fund. Also, keep in mind that
if you purchase our shares shortly before the record date for a dividend
or capital gains distribution, a portion of your investment will be
returned to you as a taxable distribution, regardless of whether you are
reinvesting your distributions or receiving them in cash.
We will notify you annually as to the tax status of dividend and
capital gains distributions paid by the Fund. A sale or redemption of our
shares is a taxable event and may result in a capital gain or loss.
Dividend distributions, capital gains distributions, and capital gains or
losses from redemptions may be subject to state and local taxes.
We are required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who have not
complied with IRS taxpayer identification regulations. You may avoid this
withholding requirement by certifying on your New Account Application your
proper Social Security or Taxpayer Identification Number and by certifying
that you are not subject to backup withholding.
The tax discussion set forth above is included for general
information purposes only. Prospective investors should consult their own
tax advisers concerning the tax consequences of an investment in the Fund.
10. DIVIDEND REINVESTMENT
You may elect to have all income dividends and capital gains
distributions reinvested in our shares or paid in cash, or to have capital
gains distributions reinvested and income dividends paid in cash. Please
refer to the New Account Application form accompanying this Prospectus for
further information. If you do not specify an election, all dividends
and capital gains distributions will automatically be reinvested in full
and fractional shares of the Fund calculated to the nearest 1,000th of a
share. Shares are purchased at the net asset value in effect on the
business day after the dividend record date and are credited to your
account on the dividend payment date. Cash dividends are also paid on
such date. You will be advised of the number of shares purchased and the
price following each reinvestment. An election to reinvest or receive
dividends and distributions in cash will apply to all our shares
registered in your name, including those previously purchased. See
"DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES" for a discussion of
certain tax consequences.
You may change an election at any time by notifying us in
writing. If such a notice is received between a dividend declaration date
and payment date, it will become effective on the day following the
payment date. We may modify or terminate our dividend reinvestment
program at any time on thirty days' notice to participants.
11. RETIREMENT PLANS
We offer the following retirement plans that may fit your needs
and allow you to shelter some of your income from taxes:
- INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individual shareholders may
establish their own tax-deferred IRA. Earnings on amounts held in
the IRA are not taxed until withdrawal.
- SIMPLIFIED EMPLOYEE PENSION PLAN (SEP/IRA). The SEP/IRA is a pension
plan in which both the employer and the employee may contribute to an
IRA. The SEP/IRA is also available to self-employed individuals.
Contact us for complete information kits, including forms,
concerning the above plans, their benefits, provisions and fees.
Consultation with a competent financial and tax adviser regarding these
plans is recommended.
12. BROKERAGE TRANSACTIONS
The Agreement authorizes the Adviser to select the brokers or
dealers that will execute the purchases and sales of our portfolio
securities. In placing purchase and sale orders for us, it is the policy
of the Adviser to seek the best execution of orders at the most favorable
price in light of the overall quality of brokerage and research services
provided.
The Agreement permits the Adviser to cause us to pay a broker
which provides brokerage and research services to the Adviser a commission
for effecting securities transactions in excess of the amount another
broker would have charged for executing the transaction, provided the
Adviser believes this to be in our best interests. Although we do not
initially intend to market our shares through intermediary broker-dealers,
we may place portfolio orders with broker-dealers who recommend the
purchase of our shares to clients if the Adviser believes the commissions
and transaction quality are comparable to that available from other
brokers and allocate portfolio brokerage on that basis. We may place
portfolio orders with Hennessy if the quality of the transaction and the
commissions are comparable to what they would be with other qualified
brokerage firms.
13. GENERAL INFORMATION
We are organized as a Maryland corporation. Our Articles of
Incorporation permit our Board of Directors to issue 500,000,000 shares of
common stock, with a $.0001 par value. Our Board of Directors has the
power to designate one or more classes ("series") of shares of common
stock and to classify or reclassify any unissued shares with respect to
such series. Currently we are offering one class of shares.
Our shares are fully paid and non-assessable; have no preference
as to conversion, exchange, dividends, retirement or other features; and
have no preemptive rights. Our shares have non-cumulative voting rights,
meaning that the holders of more than 50% of the shares voting for the
election of Directors can elect 100% of the Directors if they so choose.
Annual meetings of shareholders will not be held except as
required by the Investment Company Act of 1940 and other applicable law.
An annual meeting will be held to vote on the removal of a Director or
Directors of the Fund if requested in writing by the holders of not less
than 10% of the outstanding shares of the Fund.
All of our securities and cash are held by Firstar Trust
Company, which also serves as our transfer and dividend disbursing agent.
KPMG Peat Marwick LLP serves as our independent accountants and will audit
our financial statements annually. We are not involved in any litigation.
14. PERFORMANCE INFORMATION
We may provide from time to time in advertisements, reports to
shareholders and other communications with shareholders our average annual
total return. An average total return refers to the rate of return which,
if applied to an initial investment at the beginning of a stated period
and compounded over the period, would result in the redeemable value of
the investment at the end of the stated period assuming reinvestment of
all dividends and distribution and reflecting the effect of all recurring
fees. When considering "average" total return figures for periods longer
than one year, you should note that our annual total return for any one
year in the period might have been greater or less than the average for
the entire period. We may use "aggregate" total return figures for
various periods, representing the cumulative change in value of an
investment in the Fund for a specific period (again reflecting changes in
our share price and assuming reinvestment of dividends and distributions).
We may also compare our performance to other mutual funds with
similar investment objectives and to the industry as a whole as reported
by Lipper Analytical Services, Inc., Morningstar OnDisc, Money, Forbes,
Business Week and Barron's magazines and The Wall Street Journal, (Lipper
Analytical Services, Inc. and Morningstar OnDisc are independent ranking
services that rank mutual funds based upon total return performance.) We
may also compare our performance to the DJIA, NASDAQ Composite Index,
NASDAQ Industrials Index, Value Line Composite Index, the Standard &
Poor's 500 Stock Index, and the Consumer Price Index.
Our performance quotations represent our past performance and
should not be considered as representative of future results. The
investment return and principal value of an investment in the Fund will
fluctuate so that your shares, when redeemed, may be worth more or less
than their original cost.
<PAGE>
Table of Contents
Page No.
_____________________________
1. EXPENSES 1
2. OUR INVESTMENT STRATEGY 2 HENNESSY BALANCED
3. OUR INVESTMENT 3 FUND
RESTRICTIONS
_____________________________
4. REPORTS 3
5. OUR MANAGEMENT 4
6. HOW WE DETERMINE OUR SHARE 5
PRICE
7. PURCHASING SHARES 6
8. REDEMPTIONS 7
9. DIVIDENDS, CAPITAL GAINS 9
DISTRIBUTIONS AND TAXES
10. DIVIDEND REINVESTMENT 10
11. RETIREMENT PLANS 10
12. BROKERAGE TRANSACTIONS 11
13. GENERAL INFORMATION 11
14. PERFORMANCE INFORMATION 11
No person has been authorized
to give any information or to
make any representations
other than those contained in
this Prospectus and the PROSPECTUS
Statement of Additional
Information dated March 8,
1996, and, if given or made, Novato, California
such information or March 8, 1996
representation may not be
relied upon as having been
authorized by The Hennessy
Funds, Inc. This Prospectus
does not constitute an offer
to sell securities in any
state or jurisdiction in
which such offering may not
lawfully be made.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION March 8, 1996
THE HENNESSY FUNDS, INC.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, California 94945
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of The Hennessy Funds,
Inc. dated March 8, 1996. Requests for copies of the Prospectus should be
made by writing to The Hennessy Funds, Inc., The Courtyard Square, 750
Grant Avenue, Suite 100, Novato, California 94945, Attention: Corporate
Secretary, or by calling (415) 899-1555.
The Hennessy Funds, Inc.
TABLE OF CONTENTS
Page No.
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . 3
DIRECTORS AND OFFICERS OF THE CORPORATION . . . . . . . . . . . . . . . 4
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS . . . . . . . . . . 6
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT . . . . . . . . . . . . . 6
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . 8
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . 8
SYSTEMATIC WITHDRAWAL PLAN . . . . . . . . . . . . . . . . . . . . . . 9
ALLOCATION OF PORTFOLIO BROKERAGE . . . . . . . . . . . . . . . . . . . 10
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
STOCKHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . 12
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 13
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . 14
FINANCIAL STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
INVESTMENT RESTRICTIONS
As set forth in the Prospectus dated March 8, 1996 of The Hennessy
Funds, Inc. (the "Corporation") under the caption "OUR INVESTMENT
STRATEGY", the investment objective of the Hennessy Balanced Fund (the
"Fund") is capital appreciation and current income. Consistent with this
investment objective, the Fund has adopted the following investment
restrictions which are matters of fundamental policy and cannot be changed
without approval of the holders of the lesser of: (i) 67% of the Fund's
shares present or represented at a stockholder's meeting at which the
holders of more than 50% of such shares are present or represented; or
(ii) more than 50% of the outstanding shares of the Fund.
1. The Fund will not purchase securities of any issuer if the
purchase would cause more than 5% of the value of the Fund's total
assets to be invested in securities of such issuer (except securities
of the U.S. government or any agency or instrumentality thereof), or
purchase more than 10% of the outstanding voting securities of any
one issuer, except that up to 50% of the Fund's total assets may be
invested without regard to these limitations.
2. The Fund will not sell securities short.
3. The Fund will not purchase securities on margin (except for
such short term credits as are necessary for the clearance of
transactions) or write put or call options.
4. The Fund may not borrow money or issue senior securities
except for temporary bank borrowings (not exceeding 10% of the Fund's
total assets) or for emergency or extraordinary purposes. The Fund
will not borrow money for the purpose of investing in securities and
the Fund will not purchase any portfolio securities so long as any
borrowed amounts remain outstanding.
5. The Fund will not pledge or hypothecate its assets, except to
secure permitted borrowings.
6. The Fund will not act as an underwriter or distributor of
securities other than shares of the Fund (except to the extent that
the Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended, in the disposition of restricted
securities).
7. The Fund will not make loans, including loans of securities,
except it may acquire debt securities from the issuer or others which
are publicly distributed or are of a type normally acquired by
institutional investors and enter into repurchase agreements.
8. The Fund will not invest 25% or more of its total assets at
the time of purchase in securities of issuers whose principal
business activities are in the same industry.
9. The Fund will not make investments for the purpose of
exercising control or management of any company.
10. The Fund will not purchase or sell real estate or real estate
mortgage loans and will not make any investments in real estate
limited partnerships.
11. The Fund will not purchase or sell commodities or commodity
contracts.
12. The Fund will not purchase or sell any interest in any oil,
gas or other mineral exploration or development program, including
any oil, gas or mineral leases.
The Fund has adopted certain other investment restrictions which are
not fundamental policies and which may be changed by the Fund's Board of
Directors without stockholder approval. These additional restrictions are
as follows:
1. The Fund will not acquire or retain any security issued by a
company, an officer or director of which is an officer or director of
the Fund or an officer, director or other affiliated person of the
Fund's investment adviser.
2. The Fund will not invest in securities of any issuer which
has a record of less than three (3) years of continuous operation,
including the operation of any predecessor business of a company
which came into existence as a result of a merger, consolidation,
reorganization or purchase of substantially all of the assets of such
predecessor business.
3. The Fund will not purchase illiquid securities.
4. The Fund will not purchase the securities of other investment
companies except: (a) as part of a plan of merger, consolidation or
reorganization approved by the stockholders of the Fund; or (b)
securities of registered open-end investment companies that invest
exclusively in high quality, short-term debt securities. No
purchases described in (b) will be made if as a result of such
purchases (i) the Fund and its affiliated persons would hold more
than 3% of any class of securities, including voting securities, of
any registered investment company; (ii) more than 5% of the Fund's
net assets would be invested in shares of any one registered
investment company; and (iii) more than 10% of the Fund's net assets
would be invested in shares of registered investment companies.
The aforementioned percentage restrictions on investment or
utilization of assets refer to the percentage at the time an investment is
made. If these restrictions are adhered to at the time an investment is
made, and such percentage subsequently changes as a result of changing
market values or some similar event, no violation of the Fund's
fundamental restrictions will be deemed to have occurred. Any changes in
the Fund's investment restrictions made by the Board of Directors will be
communicated to stockholders prior to their implementation.
INVESTMENT CONSIDERATIONS
The Dow Jones Industrial Average
The Dow Jones Industrial Average ("DJIA") currently consists of the
following 30 common stocks:
Allied-Signal, Inc. The Goodyear Tire & Rubber
Company
Aluminum Company of America International Business Machines
(ALCOA) Corporation (IBM)
American Express International Paper Company
AT&T Corporation McDonald's Corporation
Bethlehem Steel Corporation Merck & Co., Inc.
The Boeing Company Minnesota Mining &
Manufacturing Company (3M)
Caterpillar, Inc. J.P. Morgan & Co. Incorporated
Chevron Corporation Philip Morris Companies
The Coca-Cola Company The Procter & Gamble Company
The Walt Disney Company Sears, Roebuck & Co.
E.I du Pont De Nemours & Co. Texaco, Inc.
Eastman Kodak Company Union Carbide Corporation
Exxon Corporation United Technologies Corporation
General Electric Company Westinghouse Electric
Corporation
General Motors Corporation Woolworth Corporation
The DJIA is the property of Dow Jones & Company, Inc. Dow Jones &
Company, Inc. is not affiliated with the Fund, the Fund's investment
adviser, The Hennessy Management Co., L.P. or Edward J. Hennessy, Inc.,
the general partner to the investment adviser. Dow Jones & Company, Inc.
has not participated in any way in the creation of the Fund or in the
selection of stocks included in the Fund and has not approved any
information included herein related thereto.
The first DJIA, consisting of 12 stocks, was published in The Wall
Street Journal in 1896. The list grew to 20 stocks in 1916 and to 30
stocks on October 1, 1928. Dow Jones & Company, Inc. from time to time
changes the stocks comprising the DJIA, although such changes are
infrequent.
The Fund's investment strategy is unlikely to be affected by the
requirement that it not concentrate its investments since currently no
more than three companies in the DJIA are engaged primarily in any one
industry. Similarly the Fund's investment strategy is unlikely to be
materially affected by the requirement that it meet the diversification
requirements of the Internal Revenue Code since it will normally have 50%
of its assets invested in U.S. Treasury securities and the remainder of
its assets divided among at least ten stocks. However the Fund's
diversification requirement may preclude it from effecting a purchase
otherwise dictated by its investment strategy. Finally because of the
requirements of the Investment Company Act of 1940 (the "Act"), the Fund
will not invest more than 5% of its total assets in the common stock of
any issuer that derives more than 15% of its revenues from securities-
related activities. From time to time this requirement may preclude the
Fund from effecting a purchase otherwise dictated by its investment
strategy.
Portfolio Turnover
The Fund will generally hold securities for approximately one year
irrespective of investment performance. Securities may be sold after
being held less than one year to fund redemption requests. Consequently
the Fund's annual portfolio turnover rate may vary from year to year.
Notwithstanding the foregoing, the Fund's portfolio turnover rate will
generally not exceed 100%. High portfolio turnover in any year will
result in the payment by the Fund of above-average transaction costs and
could result in the payment by shareholders of above-average amounts of
taxes on realized investment gains.
DIRECTORS AND OFFICERS OF THE CORPORATION
The name, age, address, principal occupation(s) during the past five
years, and other information with respect to each of the directors and
officers of the Corporation are as follows:
*Neil J. Hennessy -- Director, President and Treasurer. Mr.
Hennessy, 39, has been President of Edward J. Hennessy, Incorporated
("Hennessy") since 1989. His address is The Courtyard Square, 750 Grant
Avenue, Suite 100, Novato, CA 94945.
*Brian A. Hennessy -- Director. Mr. Hennessy, 43, has been a self-
employed dentist for more than five years. His address is 912 Grand
Avenue, San Rafael, CA 94901.
Robert T. Doyle -- Director. Mr. Doyle, 48, is currently the Sheriff
of Marin County, California and has been employed in the Marin County
Sheriff's Office in various capacities since 1969. His address is 87
Washington Street, Novato, CA 94947.
*Rodger D. Offenbach -- Director. Mr. Offenbach, 45, has been the
owner of Rays Catering since 1974. His address is 919 Eastman Lane,
Petaluma, CA 94952.
John D. DeSousa -- Director. Mr. DeSousa, 59, is a retired vice
president of the California State Automobile Association. He currently is
a private investor. His address is 682 Wilson Street, Novato, CA 94947.
Teresa M. Nilsen -- Vice President and Secretary. Ms. Nilsen, 29,
has been corporate secretary and financial officer of Hennessy since 1989.
Her address is The Courtyard Square, 750 Grant Avenue, Suite 100, Novato,
CA 94945.
_________________________
*Messrs. Neil Hennessy, Brian Hennessy and Offenbach are interested
persons of the Corporation (as defined in the Act). Messrs. Neil Hennessy
and Brian Hennessy are brothers.
The Corporation's standard method of compensating directors is to pay
each director who is not an interested person of the Corporation a fee of
$250 for each meeting of the Board of Directors attended. The Corporation
also may reimburse its directors for travel expenses incurred in order to
attend meetings of the Board of Directors.
The Corporation was incorporated on January 11, 1996. The table
below sets forth the compensation anticipated to be paid by the
Corporation to each of the current directors of the Corporation during the
fiscal year ending June 30, 1996:
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Benefits Estimated from
Aggregate Accrued As Annual Corporation
Compensation Part of Benefits and Fund
from Fund Upon Complex Paid
Name of Person Corporation Expenses Retirement to Directors
Neil J. Hennessy $0 $0 $0 $0
Brian A. Hennessy 0 0 0 0
Robert T. Doyle 500 0 0 500
Rodger D. Offenbach 0 0 0 0
John D. DeSousa 500 0 0 500
OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of the date hereof, The Hennessy Management Co., L.P., the Fund's
investment adviser, owns 100% of its outstanding shares. As of such date,
The Hennessy Management Co., L.P. controlled the Fund and the Corporation
and owned sufficient shares of the Fund to approve or disapprove all
matters brought before stockholders of the Fund, including the election of
directors of the Corporation and the approval of auditors. The
Corporation does not control any person.
INVESTMENT ADVISER, ADMINISTRATOR, CUSTODIAN,
TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
As set forth in the Prospectus under the caption "MANAGEMENT OF THE
FUND," the investment adviser to the Fund is The Hennessy Management Co.,
L.P., The Courtyard Square, 750 Grant Avenue, Suite 100, Novato,
California 94945 (the "Adviser"). Pursuant to the investment advisory
agreement entered into between the Corporation and the Adviser with
respect to the Fund (the "Advisory Agreement"), the Adviser furnishes
continuous investment advisory services to the Fund. The Adviser is
controlled by its general partner, Edward J. Hennessy, Incorporated, which
is in turn controlled by Neil J. Hennessy. Mr. Offenbach is a limited
partner of the Adviser.
The Adviser has undertaken to reimburse the Fund to the extent that
the aggregate annual operating expenses, including the investment advisory
fee and the administration fee but excluding interest, taxes, brokerage
commissions and other costs incurred in connection with the purchase or
sale of portfolio securities, and extraordinary items, exceed that
percentage of the average net assets of the Fund for such year, as
determined by valuations made as of the close of each business day of the
year, which is the most restrictive percentage provided by the state laws
of the various states in which the shares of the Fund are qualified for
sale or, if the states in which the shares of the Fund are qualified for
sale impose no such restrictions, 3%. As of the date of this Statement of
Additional Information, the percentage applicable to the Fund is 2-1/2% on
the first $30,000,000 of its average daily net assets, 2% on average daily
the next $70,000,000 of its average daily net assets and 1-1/2% on average
daily net assets in excess of $100,000,000. The Fund monitors its expense
ratio on a monthly basis. If the accrued amount of the expenses of the
Fund exceeds the expense limitation, the Fund creates an account
receivable from the Adviser for the amount of such excess. In such a
situation the monthly payment of the Adviser's fee will be reduced by the
amount of such excess (and if the amount of such excess in any month is
greater than the monthly payment of the Adviser's fee, the Adviser will
pay the Fund the amount of such difference), subject to adjustment month
by month during the balance of the Fund's fiscal year if accrued expenses
thereafter fall below this limit.
The Advisory Agreement will remain in effect as long as its
continuance is specifically approved at least annually (i) by the Board of
Directors of the Corporation or by the vote of a majority (as defined in
the Act) of the outstanding shares of the Fund, and (ii) by the vote of a
majority of the directors of the Fund who are not parties to the Advisory
Agreement or interested persons of the Adviser, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement provides that it may be terminated at any time without the
payment of any penalty, by the Board of Directors of the Corporation or by
vote of the majority of the Fund's stockholders on sixty (60) days'
written notice to the Adviser, and by the Adviser on the same notice to
the Corporation, and that it shall be automatically terminated if it is
assigned.
The Advisory Agreement provides that the Adviser shall not be liable
to the Corporation or its stockholders for anything other than willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations or duties. The Advisory Agreement also provides that the
Adviser and its officers, directors and employees may engage in other
businesses, devote time and attention to any other business whether of a
similar or dissimilar nature, and render services to others.
As set forth in the Prospectus under the caption "WHO MANAGES THE
FUND?", the administrator to the Corporation is Firstar Trust Company, 615
East Michigan Street, Milwaukee, Wisconsin 53202 (the "Administrator").
The Fund Administration Servicing Agreement entered into between the
Corporation and the Administrator relating to the Fund (the
"Administration Agreement") will remain in effect until terminated by
either party. The Administration Agreement may be terminated at any time,
without the payment of any penalty, by the Board of Directors of the
Corporation upon the giving of ninety (90) days' written notice to the
Administrator, or by the Administrator upon the giving of ninety (90)
days' written notice to the Corporation.
Under the Administration Agreement, the Administrator shall exercise
reasonable care and is not liable for any error or judgment or mistake of
law or for any loss suffered by the Corporation in connection with the
performance of the Administration Agreement, except a loss resulting from
willful misfeasance, bad faith or negligence on the part of the
Administrator in the performance of its duties under the Administration
Agreement.
Firstar Trust Company also serves as custodian of the Corporation's
assets pursuant to a Custody Agreement. Under the Custody Agreement,
Firstar Trust Company has agreed to (i) maintain a separate account in the
name of the Fund, (ii) make receipts and disbursements of money on behalf
of the Fund, (iii) collect and receive all income and other payments and
distributions on account of the Fund's portfolio investments, (iv) respond
to correspondence from shareholders, security brokers and others relating
to its duties and (v) make periodic reports to the Fund concerning the
Fund's operations. Firstar Trust Company does not exercise any
supervisory function over the purchase and sale of securities. For its
services as custodian, Firstar Trust Company is entitled to receive a fee,
payable monthly, based on the annual rate of .02% of the net assets of the
Fund (subject to a minimum annual $3000 fee). In addition, Firstar Trust
Company, as custodian, is entitled to certain charges for securities
transactions and reimbursement for expenses.
Firstar Trust Company also serves as transfer agent and dividend
disbursing agent for the Fund under a Shareholder Servicing Agent
Agreement. As transfer and dividend disbursing agent, Firstar Trust
Company has agreed to (i) issue and redeem shares of the Fund, (ii) make
dividend and other distributions to shareholders of the Fund, (iii)
respond to correspondence by Fund shareholders and others relating to its
duties, (iv) maintain shareholder accounts, and (v) make periodic reports
to the Fund. For its transfer agency and dividend disbursing services,
Firstar Trust Company is entitled to receive fees at the rate of $13 per
shareholder account (subject to a minimum annual fee of $21,000). Also,
Firstar Trust Company is entitled to certain other transaction charges and
reimbursement for expenses.
In addition the Corporation has entered into a Fund Accounting
Servicing Agreement with Firstar Trust Company pursuant to which Firstar
Trust Company has agreed to maintain the financial accounts and records of
the Fund and provide other accounting services to the Fund. For its
accounting services, Firstar Trust Company is entitled to receive fees,
payable monthly, based on the total annual rate of $22,000 for the first
$40 million in average net assets of the Fund, .01% on the next $200
million of average net assets, and .0005% on average net assets exceeding
$240 million. Firstar Trust Company is also entitled to certain out of
pocket expenses, including pricing expenses.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "HOW IS THE FUND'S
SHARE PRICE DETERMINED?", the net asset value of the Fund will be
determined as of the close of regular trading (currently 4:00 p.m. Eastern
time) on each day the New York Stock Exchange is open for trading. The
New York Stock Exchange is open for trading Monday through Friday except
New Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Additionally, when any of the aforementioned holidays falls on a Saturday,
the New York Stock Exchange will not be open for trading on the preceding
Friday and when any such holiday falls on a Sunday, the New York Stock
Exchange will not be open for trading on the succeeding Monday, unless
unusual business conditions exist, such as the ending of a monthly or the
yearly accounting period. The New York Stock Exchange also may be closed
on national days of mourning.
DISTRIBUTION OF SHARES
The Fund has adopted a Service and Distribution Plan (the "Plan") in
anticipation that the Fund will benefit from the Plan through increased
sales of shares, thereby reducing the Fund's expense ratio and providing
an asset size that allows the Adviser greater flexibility in management.
The Plan may be terminated by the Fund at any time by a vote of the
directors of the Corporation who are not interested persons of the
Corporation and who have no direct or indirect financial interest in the
Plan or any agreement related thereto (the "Rule 12b-1 Directors") or by a
vote of a majority of the outstanding shares of the Fund. Messrs. Doyle
and DeSousa are currently the Rule 12b-1 Directors. Any change in the
Plan that would materially increase the distribution expenses of the Fund
provided for in the Plan requires approval of the stockholders of the Fund
and the Board of Directors, including the Rule 12b-1 Directors.
While the Plan is in effect, the selection and nomination of
directors who are not interested persons of the Corporation will be
committed to the discretion of the directors of the Corporation who are
not interested persons of the Corporation. The Board of Directors of the
Corporation must review the amount and purposes of expenditures pursuant
to the Plan quarterly as reported to it by a Distributor, if any, or
officers of the Corporation. The Plan will continue in effect for as long
as its continuance is specifically approved at least annually by the Board
of Directors, including the Rule 12b-1 Directors. The Fund did not begin
operations until March 8, 1996 and, thus, the Fund had not incurred any
distribution costs as of that date. Initially all payments under the Plan
will be made to the Adviser who directly bears all sales and promotional
expenses of the Fund, other than expenses incurred in complying with laws
regulating the issuance or sale of securities. The Adviser has entered
into an agreement with Hennessy pursuant to which it will pay Hennessy an
amount equal to 1% of the net asset value of all shares of the Fund sold
other than through dividend reinvestments. This agreement provides that
Hennessy must repay any such fees with respect to shares redeemed within
one month after the date of the original purchase other than shares
redeemed as a result of the death or disability of the shareholder.
SYSTEMATIC WITHDRAWAL PLAN
An investor who owns Fund shares worth at least $10,000 at the
current net asset value may, by completing an application which may be
obtained from the Fund or Firstar Trust Company, create a Systematic
Withdrawal Plan from which a fixed sum will be paid to the investor at
regular intervals. To establish the Systematic Withdrawal Plan, the
investor deposits Fund shares with the Corporation and appoints it as
agent to effect redemptions of Fund shares held in the account for the
purpose of making monthly or quarterly withdrawal payments of a fixed
amount to the investor out of the account. Fund shares deposited by the
investor in the account need not be endorsed or accompanied by a stock
power if registered in the same name as the account; otherwise, a properly
executed endorsement or stock power, obtained from any bank, broker-dealer
or the Corporation is required. The investor's signature should be
guaranteed by a bank, a member firm of a national stock exchange or other
eligible guarantor.
The minimum amount of a withdrawal payment is $100. These payments
will be made from the proceeds of periodic redemptions of shares in the
account at net asset value. Redemptions will be made in accordance with
the schedule (e.g., monthly, bimonthly [every other month], quarterly or
yearly, but in no event more than monthly) selected by the investor. If a
scheduled redemption day is a weekend day or a holiday, such redemption
will be made on the next preceding business day. Establishment of a
Systematic Withdrawal Plan constitutes an election by the investor to
reinvest in additional Fund shares, at net asset value, all income
dividends and capital gains distributions payable by the Fund on shares
held in such account, and shares so acquired will be added to such
account. The investor may deposit additional Fund shares in his account
at any time.
Withdrawal payments cannot be considered as yield or income on the
investor's investment, since portions of each payment will normally
consist of a return of capital. Depending on the size or the frequency of
the disbursements requested, and the fluctuation in the value of the
Fund's portfolio, redemptions for the purpose of making such disbursements
may reduce or even exhaust the investor's account.
The investor may vary the amount or frequency of withdrawal payments,
temporarily discontinue them, or change the designated payee or payee's
address, by notifying Firstar Trust Company in writing thirty (30) days
prior to the next payment.
ALLOCATION OF PORTFOLIO BROKERAGE
The Fund's securities trading and brokerage policies and procedures
are reviewed by and subject to the supervision of the Corporation's Board
of Directors. Decisions to buy and sell securities for the Fund are made
by the Adviser subject to review by the Corporation's Board of Directors.
In placing purchase and sale orders for portfolio securities for the Fund,
it is the policy of the Adviser to seek the best execution of orders at
the most favorable price in light of the overall quality of brokerage and
research services provided, as described in this and the following
paragraphs. Many of these transactions involve payment of a brokerage
commission by the Fund. In some cases, transactions are with firms who
act as principals of their own accounts. In selecting brokers to effect
portfolio transactions, the determination of what is expected to result in
best execution at the most favorable price involves a number of largely
judgmental considerations. Among these are the Adviser's evaluation of
the broker's efficiency in executing and clearing transactions, block
trading capability (including the broker's willingness to position
securities) and the broker's reputation, financial strength and stability.
The most favorable price to the Fund means the best net price without
regard to the mix between purchase or sale price and commission, if any.
Securities not listed on exchanges may be purchased and sold directly with
principal market makers who retain the difference in their cost in the
security and its selling price. In some instances, the Adviser feels that
better prices are available from non-principal market makers who are paid
commissions directly. Although the Fund does not initially intend to
market its shares through intermediary broker-dealers, the Fund may place
portfolio orders with broker-dealers who recommend the purchase of Fund
shares to clients (if the Adviser believes the commissions and transaction
quality are comparable to that available from other brokers) and may
allocate portfolio brokerage on that basis.
The Adviser may allocate brokerage to Hennessy but only if the
Adviser reasonably believes the commission and transaction quality are
comparable to that available from other qualified brokers. Under the Act,
Hennessy is prohibited from dealing with the Fund as a principal in the
purchase and sale of securities. Hennessy, when acting as a broker for
the Fund in any of its portfolio transactions executed on a securities
exchange of which Hennessy is a member, will act in accordance with the
requirements of Section 11(a) of the Securities Exchange Act of 1934 and
the rules of such exchanges.
In allocating brokerage business for the Fund, the Adviser also takes
into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Advisory Agreement. Other clients of the Adviser may
indirectly benefit from the availability of these services to the Adviser,
and the Fund may indirectly benefit from services available to the Adviser
as a result of transactions for other clients. The Advisory Agreement
provides that the Adviser may cause the Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker
would have charged for effecting the transaction, if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of brokerage and research services provided by the
executing broker viewed in terms of either the particular transaction or
the Adviser's overall responsibilities with respect to the Fund and the
other accounts as to which he exercises investment discretion. The Fund
did not commence operations until March 8, 1996.
TAXES
As set forth in the Prospectus under the caption "TAXES," the Fund
will endeavor to qualify annually for and elect tax treatment applicable
to a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code").
Dividends from the Fund's earnings and profits, and distributions of
the Fund's net long-term realized capital gains, are taxable to investors,
whether received in cash or in additional shares of the Fund. The 70%
dividends-received deduction for corporations will apply only to the
proportionate share of the dividend attributable to dividends received by
the Fund from domestic corporations.
Redemption of shares will generally result in a capital gain or loss
for income tax purposes. Such capital gain or loss will be long term or
short term, depending upon the holding period. However, if a loss is
realized on shares held for six months or less, and the investor received
a capital gain distribution during that period, then such loss is treated
as a long-term capital loss to the extent of the capital gain distribution
received.
This section is not intended to be a full discussion of present or
proposed federal income tax laws and the effect of such laws on an
investor. Investors are urged to consult with their respective tax
advisers for a complete review of the tax ramifications of an investment
in the Fund.
STOCKHOLDER MEETINGS
The Maryland General Corporation Law permits registered investment
companies, such as the Corporation, to operate without an annual meeting
of stockholders under specified circumstances if an annual meeting is not
required by the Act. The Corporation has adopted the appropriate
provisions in its Bylaws and may, at its discretion, not hold an annual
meeting in any year in which the election of directors is not required to
be acted on by stockholders under the Act.
The Corporation's Bylaws also contain procedures for the removal of
directors by its stockholders. At any meeting of stockholders, duly
called and at which a quorum is present, the stockholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
Upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting, the Secretary of the Corporation shall promptly call a special
meeting of stockholders for the purpose of voting upon the question of
removal of any director. Whenever ten or more stockholders of record who
have been such for at least six months preceding the date of application,
and who hold in the aggregate either shares having a net asset value of at
least $25,000 or at least one percent (1%) of the total outstanding
shares, whichever is less, shall apply to the Corporation's Secretary in
writing, stating that they wish to communicate with other stockholders
with a view to obtaining signatures to a request for a meeting as
described above and accompanied by a form of communication and request
which they wish to transmit, the Secretary shall within five business days
after such application either: (1) afford to such applicants access to a
list of the names and addresses of all stockholders as recorded on the
books of the Corporation; or (2) inform such applicants as to the
approximate number of stockholders of record and the approximate cost of
mailing to them the proposed communication and form of request.
If the Secretary elects to follow the course specified in clause (2)
of the last sentence of the preceding paragraph, the Secretary, upon the
written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall,
with reasonable promptness, mail such material to all stockholders of
record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such
applicants and file with the Securities and Exchange Commission, together
with a copy of the material to be mailed, a written statement signed by at
least a majority of the Board of Directors to the effect that in their
opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the
basis of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the Securities and Exchange Commission may,
and if demanded by the Board of Directors or by such applicants shall,
enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all stockholders with reasonable promptness
after the entry of such order and the renewal of such tender.
PERFORMANCE INFORMATION
Average annual total return measures both the net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments in the Fund's investment
portfolio. The Fund's average annual total return figures are computed in
accordance with the standardized method prescribed by the Securities and
Exchange Commission by determining the average annual compounded rates of
return over the periods indicated, that would equate the initial amount
invested to the ending redeemable value, according to the following
formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end
of the period of a hypothetical
$1,000 payment made at the beginning
of such period
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value or the appropriate reinvestment dates as
described in the Prospectus, and (ii) deducts all recurring fees, such as
advisory fees, charged as expenses to all investor accounts.
Total return is the cumulative rate of investment growth which
assumes that income dividends and capital gains are reinvested. It is
determined by assuming a hypothetical investment at the net asset value at
the beginning of the period, adding in the reinvestment of all income
dividends and capital gains, calculating the ending value of the
investment at the net value as of the end of the specified time period,
subtracting the amount of the original investment, and dividing this
amount by the amount of the original investment. This calculated amount
is then expressed as a percentage by multiplying by 100.
Performance results are based on historical earnings and should not
be considered as representative of the performance of the Fund in the
future. An investment in the Fund will fluctuate in value and at
redemption its value may be more or less than the initial investment.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 777 East Wisconsin Avenue, Milwaukee,
Wisconsin 53202 has been selected as the independent accountants for the
Fund. As such KPMG Peat Marwick LLP performs an audit of the Fund's
financial statements including evaluation of the Fund's internal control
structure.
FINANCIAL STATEMENT
The following financial statement for the Fund is attached hereto:
- Independent Auditors' Report
- Statement of Assets and Liabilities
- Notes to the Financial Statement
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder and
Board of Directors of
Hennessy Balanced Fund:
We have audited the accompanying statement of assets and liabilities of
Hennessy Balanced Fund (the "Fund"), a series of The Hennessy Funds, Inc.,
a Maryland corporation, as of February 20, 1996. This financial statement
is the responsibility of the Fund's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free
of material misstatement. An audit of a financial statement includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. Our procedures included
confirmation of cash owned with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of
Hennessy Balanced Fund as of February 20, 1996, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Milwaukee, Wisconsin
February 26, 1996
<PAGE>
Hennessy Balanced Fund
Statement of Assets and Liabilities
February 20, 1996
ASSETS
Cash . . . . . . . . . . . . . . . $100,000
Unamortized organizational costs . 25,900
Prepaid initial registration
expenses . . . . . . . . . . . . . 5,000
--------
Total Assets . . . . . . . . . . $130,900
--------
LIABILITIES
Payable to Adviser . . . . . . . . 30,900
--------
Total Liabilities . . . . . . . 30,900
--------
NET ASSETS $100,000
========
Capital Stock, $0.0001 par value;
100,000,000 shares authorized;
10,000 shares outstanding . . . . . $100,000
========
Offering and redemption price/net
asset value per share (based on
10,000 shares of capital stock
issued and outstanding) . . . . . . $10.00
======
The accompanying notes to financial statement are an integral part of this
statement.
NOTES TO FINANCIAL STATEMENT
1. The Hennessy Funds, Inc. was incorporated under the laws of the
state of Maryland on January 11, 1996 and has had no operations to date
other than those relating to organizational matters and the sale of 10,000
shares of its common stock to its original stockholder, The Hennessy
Management Co., L.P., (the "Adviser").
2. The Hennessy Funds, Inc., which consists solely of Hennessy
Balanced Fund (the "Fund"), has an agreement with the Adviser, with whom
certain officers and directors of The Hennessy Funds, Inc. are affiliated,
to furnish investment advisory services to the Fund. Under the terms of
this agreement, the Fund will pay the Adviser a monthly fee based on the
Fund's average daily net assets at the annual rate of 0.85%.
Under the investment advisory agreement, if the aggregate annual
operating expenses (including the investment advisory fee and the
administration fee but excluding interest, taxes, brokerage commissions
and other costs incurred in connection with the purchase or sale of
portfolio securities, and extraordinary items) exceed the lowest
limitations imposed by state securities administrators, the Adviser will
reimburse the Fund for the amount of such excess. Additionally, the
Adviser has agreed to reimburse the Fund to the extent aggregate annual
operating expenses exceed 3.00% of the average daily net assets of the
Fund.
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
Fund has adopted a Service and Distribution Plan (the "Plan"). Under the
Plan, the Fund is authorized to pay expenses incurred for the purpose of
financing activities intended to result in the sale of shares of the Fund
at an annual rate of up to 0.75% of the Fund's average daily net assets.
Initially all payments under the Plan will be made to the Adviser. The
Adviser has entered into an agreement with its general partner, Edward J.
Hennessy, Incorporated, pursuant to which it will pay Edward J. Hennessy,
Incorporated an amount equal to 1% of the net assets of all shares of the
Fund sold other than through dividend reinvestment. This agreement
provides that Hennessy must repay any such fees with respect to shares
redeemed within one month after the date of the original purchase other
than shares redeemed as a result of the death or disability of the
stockholder.
3. Organizational costs and initial registration expenses are being
deferred and amortized over the period of benefit, but not to exceed sixty
months from the Fund's commencement of operations. These costs were
advanced by the Adviser and will be reimbursed by the Fund. The proceeds
of any redemption of the initial shares by the original stockholder or any
transferee will be reduced by a pro-rata portion of any then unamortized
organizational expenses in the same proportion as the number of initial
shares being redeemed bears to the number of initial shares outstanding at
the time of such redemption.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a.) Financial Statement (included in Part B)
Independent Auditors' Report
Statement of Assets and Liabilities
Notes to Financial Statement
(b.) Exhibits
(1) Registrant's Articles of Incorporation (Exhibit 1 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933)
(2) Registrant's Bylaws (Exhibit 2 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933)
(3) None
(4) None
(5) Investment Advisory Agreement with The Hennessy
Management Co., L.P. relating to the Hennessy Balanced
Fund (Exhibit 5 to Registrant's Registration Statement
on Form N-1A is incorporated by reference pursuant to
Rule 411 under the Securities Act of 1933)
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust Company (Exhibit
8 to Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933)
(9.1) Fund Administration Servicing Agreement with Firstar
Trust Company relating to the Hennessy Balanced Fund
(Exhibit 9.1 to Registrant's Registration Statement on
Form N-1A is incorporated by reference pursuant to Rule
411 under the Securities Act of 1933)
(9.2) Transfer Agent Agreement with Firstar Trust Company
relating to Hennessy Balanced Fund (Exhibit 9.2 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933)
(9.3) Fund Accounting Servicing Agreement with Firstar Trust
Company (Exhibit 9.3 to Registrant's Registration
Statement on Form N-1A is incorporated by reference
pursuant to Rule 411 under the Securities Act of 1933)
(10) Opinion of Foley & Lardner, counsel for Registrant
(11) Consent of KPMG Peat Marwick LLP
(12) None
(13) Subscription Agreement (Exhibit 13 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933)
(14) Individual Retirement Custodial Account (Exhibit 14 to
Registrant's Registration Statement on Form N-1A is
incorporated by reference pursuant to Rule 411 under the
Securities Act of 1933)
(15) Service and Distribution Plan
(15.1) Agreement pursuant to Distribution Plan
(15.2) Distribution Agreement
(16) None.
(17) Financial Data Schedule
(18) None.
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by The Hennessy Management Co., L.P., a
California limited partnership, which owned 100% of its voting securities
as of February 26, 1996. Registrant neither controls any person nor is
under common control with any other person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of February 26, 1996
Class A Common Stock, $0.0001 1
par value (Hennessy Balanced
Fund)
Item 27. Indemnification
Pursuant to the authority of the Maryland General Corporation
Law, particularly Section 2-418 thereof, Registrant's Board of Directors
has adopted the following bylaw which is in full force and effect and has
not been modified or cancelled:
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The Corporation shall indemnify all of its corporate
representatives against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall create a rebuttable presumption that the person was
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation
of and/or presentation of the defense of a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 2-418(F) of the Maryland General Corporation Law upon
receipt of: (i) an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw; and (ii) a written affirmation by the
corporate representative of the corporate representative's good faith
belief that the standard of conduct necessary for indemnification by the
corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under these bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person subject to the limitations imposed from
time to time by the Investment Company Act of 1940, as amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation
and who, by reason of his or her position, is, was, or is threatened to be
made, a party to a proceeding described herein.
Insofar as indemnification for and with respect to liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid by a
director, officer or controlling person or Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Incorporated by reference to pages 4 through 7 of the Statement
of Additional Information pursuant to Rule 411 under the Securities Act of
1933.
Item 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder are in the
physical possession of Registrant and Registrant's Administrator as
follows: the documents required to be maintained by paragraphs (5), (6),
(7), (10) and (11) of Rule 31a-1(b) will be maintained by the Registrant
at The Courtyard Square, 750 Grant Avenue, Suite 100, Novato, California
94945; and all other records will be maintained by the Registrant's
Administrator, Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin.
Item 31. Management Services
All management-related service contracts entered into by
Registrant are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
Registrant undertakes to file a post-effective amendment to this
Registration Statement within four to six months of the effective date of
this Registration Statement which will contain financial statements (which
need not be certified) as of and for the time period reasonably close or
as soon as practicable to the date of such post-effective amendment.
Registrant undertakes, if requested to do so by holders of at
least 10% of Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a
director or directors and to assist in communication with other
shareholders as required by Section 16(c) of the Investment Company Act of
1940.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Novato and State of California
on the 2nd day of March, 1996.
THE HENNESSY FUNDS, INC.
(Registrant)
By: /s/ Neil J. Hennessy
Neil J. Hennessy, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date(s) indicated.
Name Title Date
/s/ Neil J. Hennessy President and March 2, 1996
Neil J. Hennessy Treasurer (Principal
Executive, Financial
and Accounting
Officer) and a
Director
/s/ Brian A. Hennessy Director March 2, 1996
Brian A. Hennessy
/s/ Robert T. Doyle Director March 2, 1996
Robert T. Doyle
/s/ Rodger D. Offenbach Director March 2, 1996
Rodger D. Offenbach
/s/ John D. DeSousa Director March 2, 1996
John D. DeSousa
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(1) Registrant's Articles of Incorporation*
(2) Registrant's Bylaws*
(3) None
(4) None
(5) Investment Advisory Agreement with The
Hennessy Management Co., L.P. relating
to Hennessy Balanced Fund*
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust
Company*
(9.1) Fund Administration Servicing Agreement
with Firstar Trust Company relating to
Hennessy Balanced Fund*
(9.2) Transfer Agent Agreement with Firstar
Trust Company*
(9.3) Fund Accounting Servicing Agreement
with Firstar Trust Company*
(10) Opinion of Foley & Lardner, counsel for
Registrant
(11) Consent of KPMG Peat Marwick LLP
(12) None
(13) Subscription Agreement*
(14) Individual Retirement Custodial
Account*
(15) Service and Distribution Plan
(15.1) Agreement pursuant to Distribution Plan
(15.2) Distribution Agreement
(16) None
(17) Financial Data Schedule
(18) None
__________________________________
* Incorporated by Reference.
EXHIBIT 10
FOLEY & LARDNER
A T T O R N E Y S A T L A W
FIRSTAR CENTER
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202-5367
A MEMBER OF GLOBALEX
WITH MEMBER OFFICES IN
MADISON BERLIN
CHICAGO TELEPHONE (414) 271-2400 BRUSSELS
WASHINGTON, D.C. DRESDEN
JACKSONVILLE TELEX 26-819 FRANKFURT
ORLANDO LONDON
TALLAHASSEE (FOLEY LARD MIL) PARIS
TAMPA SINGAPORE
WEST PALM BEACH FACSIMILE (414) 297-4900 STUTTGART
TAIPEI
WRITER'S DIRECT LINE
March 4, 1996
The Hennessy Funds, Inc.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, CA 94945
Gentlemen:
We have acted as counsel for you in connection with the
preparation of a Registration Statement on Form N-1A relating to the sale
by you of an indefinite amount of The Hennessy Funds, Inc. Common Stock,
$0.0001 par value (such Common Stock being hereinafter referred to as the
"Stock") in the manner set forth in the Registration Statement to which
reference is made. In this connection we have examined: (a) the
Registration Statement on Form N-1A; (b) your Articles of Incorporation
and Bylaws, as amended to date; (c) corporate proceedings relative to the
authorization for issuance of the Stock; and (d) such other proceedings,
documents and records as we have deemed necessary to enable us to render
this opinion.
Based upon the foregoing, we are of the opinion that the shares
of Stock when sold as contemplated in the Registration Statement will be
legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to
the Form N-1A Registration Statement. In giving this consent, we do not
admit that we are experts within the meaning of Section 11 of the
Securities Act of 1933, as amended, or within the category of persons
whose consent is required by Section 7 of said Act.
Very truly yours,
FOLEY & LARDNER
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
The Shareholder and Board of Directors of
Hennessy Balanced Fund:
We consent to the use of our report included herein and to the reference
to our Firm in the Statement of Additional Information under the heading
"Independent Auditors".
KPMG PEAT MARWICK LLP
Milwaukee, Wisconsin
March 2, 1996
EXHIBIT 15
SERVICE AND DISTRIBUTION PLAN
OF
THE HENNESSY FUNDS, INC.
WHEREAS, The Hennessy Funds, Inc. (the "Fund") is registered
with the Securities and Exchange Commission as an open-end management
investment company under the Investment Company Act of 1940, as amended
(the "Act");
WHEREAS, the Fund intends to act as a distributor of shares of
its Common Stock, $.0001 par value ("Common Stock"), as defined in Rule
12b-1 under the Act, and desires to adopt a distribution plan pursuant to
such Rule, and the Board of Directors has determined that there is a
reasonable likelihood that adoption of this Service and Distribution Plan
will benefit the Fund and its shareholders; and
WHEREAS, the Fund may enter into agreements with dealers and
other financial service organizations to obtain various distribution-
related and/or shareholder services for the Fund, all as permitted and
contemplated by Rule 12b-1 under the Act; it being under that to the
extent any activity is one in which the Fund may finance without a Rule
12b-1 plan, the Fund may also make payments to finance such activity
outside such a plan and not subject to its limitations.
NOW, THEREFORE, the Fund hereby adopts this Service and
Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the Act
on the following terms and conditions:
1. Distribution and Service Fee. The Fund may charge a
distribution expense and service fee on an annualized basis of 0.75% of
the Fund's average daily net assets. Such fee shall be calculated and
accrued daily and paid at such intervals as the Board of Directors of the
Fund shall determine, subject to any applicable restriction imposed by
rules of the National Association of Securities Dealers, Inc.
2. Permitted Expenditures. The amount set forth in paragraph
1 of this Plan shall be paid for services or expenses primarily intended
to result in the sale of the Fund's shares. The Fund may pay all or a
portion of this fee to any securities dealer, financial institution or any
other person (the "Shareholder Organization(s)") who renders personal
service to shareholders, assists in the maintenance of shareholder
accounts or who renders assistance in distributing or promoting the sale
of the Fund's shares pursuant to a written agreement approved by the
Board of Directors (the "Related Agreement"). To the extent such fee is
not paid to such persons, the Fund may use the fee to pay for its expenses
of distribution of its shares including, but not limited to, payment by
the Fund of the cost of preparing, printing and distributing Prospectuses
and Statements of Additional Information to prospective investors and of
implementing and operating the Plan as well as payment of capital or other
expenses of associated equipment, rent, salaries, bonuses, interest and
other overhead costs.
3. Effective Date of Plan. This Plan shall not take effect
until (a) it has been approved by a vote of at least a majority (as
defined in the Act) of the outstanding shares of Common Stock and (b)
(together with any related agreements) by votes of a majority of both (i)
the Board of Directors of the Fund and (ii) those Directors of the Fund
who are not "interested persons" of the Fund (as defined in the Act) and
have no direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast in
person at a meeting (or meetings) called for the purpose of voting on this
Plan and such related agreements.
4. Continuance. Unless otherwise terminated pursuant to
paragraph 6 below, this Plan shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner
provided for approval of this Plan in paragraph 3(b).
5. Reports. Any person authorized to direct the disposition
of monies paid or payable by the Fund pursuant to this Plan or any related
agreement shall provide to the Fund's Board of Directors and the Board
shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
6. Termination. This Plan may be terminated at any time by
vote of a majority of the Rule 12b-1 Directors, or by a vote of a majority
of the outstanding shares of Common Stock.
7. Amendments. This Plan may not be amended to increase
materially the amount of payments provided for in paragraph 1 hereof
unless such amendment is approved in the manner provided for initial
approval in paragraph 3 hereof. No other amendment to the Plan may be
made unless approved in the manner provided for approval of this Plan in
paragraph 3(b).
8. Selection of Directors. While this Plan is in effect, the
selection and nomination of Directors who are not interested persons (as
defined in the Act) of the Fund shall be committed to the discretion of
the Directors who are not interested persons.
9. Records. The Fund shall preserve copies of this Plan and
any related agreements and all reports made pursuant to paragraph 6
hereof, for a period of not less than six years from the date of this
Plan, or the agreements or such report, as the case may be, the first two
years in an easily accessible place.
EXHIBIT 15.1
AGREEMENT
March 2, 1996
The Hennessy Management Co., L.P.
The Courtyard Square
750 Grant Avenue
Suite 100
Novato, CA 94945
Gentlemen:
This is to confirm that in consideration of the agreements
hereinafter contained, the undersigned, The Hennessy Funds, Inc., a
Maryland corporation (the "Fund"), has agreed that you shall be, for the
period of this Agreement, a recipient of payments under the Fund's Service
and Distribution Plan (the "Plan") under Rule 12b-1 under the Investment
Company Act of 1940. This Agreement is subject to the terms and
conditions of the Plan, which is incorporated herein by reference.
1. Services to the Fund
1.1 You are hereby authorized to retain one or more
distributors (the "Distributors") for the shares of common stock of the
Fund (the "Shares") in accordance with the instructions of the Fund's
Board of Directors and the Fund's registration statement and then current
prospectus and statement of additional information under the Securities
Act of 1933, as amended. You shall monitor the activities of the
Distributors and report quarterly to the Board of Directors as to the
performance of the Distributors. Additionally you shall provide the
reports required by Paragraph 5 of the Plan.
1.1(a) You, at your own expense, shall finance appropriate
activities which you deem reasonable which are primarily intended to
result in the sale of Shares, including, but not limited to, advertising,
compensation of the Distributors, the printing and mailing of prospectuses
to other than current shareholders and the printing and mailing of sales
literature.
1.1(b) All Shares offered for sale by the Distributors shall
be offered for sale to the public at a price per Share equal to their net
asset value (determined in the manner set forth in the Fund's Registration
Statement and then current prospectus and statement of additional
information).
1.1(c) You are authorized to pay Edward J. Hennessy,
Incorporated ("Hennessy") a fee equal to 1% of the net asset value of all
Shares sold other than Shares sold pursuant to the reinvestment of
dividends. The obligation to pay Hennessy shall be your obligation and
not an obligation of the Fund. Your agreement with Hennessy shall provide
that if any Shares are redeemed within one month after the date of
original purchase, Hennessy shall repay to you the fee earned with respect
to the original sale of such Shares; provided, however, that such fees
shall not be required to be repaid in the event of death or disability of
the shareholder. Your agreement with Hennessy shall provide that in
determining whether Hennessy is required to repay fees with respect to a
redemption of less than all of a shareholder's Shares, Shares which have
been held for one month will be considered to have been redeemed first and
then other Shares in the order purchased. You are also authorized to pay
other Distributors such fees that you negotiate with them in accordance
with paragraph 1.1(a), all of such payments to be your obligations and not
the obligation of the Fund.
1.1(d) In exchange for such services, the Fund agrees to pay
you quarterly fees in an amount equal to the amount of fees paid to the
Distributors pursuant to Section 1.1(c) less any amount repaid by
Hennessy; provided, however, that the fees paid hereunder in any fiscal
year of the Fund shall not exceed 0.75% of the average daily net assets of
the Fund.
1.2 Your agreement with Distributors shall provide that it
shall act as distributor of the Shares in compliance with all state and
federal laws, rules and regulations and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
1.3 Whenever in their judgment such action is warranted by
market, economic or political conditions, or by circumstances of any kind,
the Fund's officers may decline to accept any orders for, or make any
sales of, any Shares until such time as they deem it advisable to accept
such orders and to make such sales and the Fund shall advise you promptly
of such determination.
1.4 The Fund agrees to pay all costs and expenses in connection
with the registration of the Shares under the Securities Act of 1933, as
amended, and to be responsible for all expenses in connection with
maintaining facilities for the issue and transfer of Shares and for
supplying information, prices and other data to be furnished by the Fund
hereunder.
1.5 The Fund agrees to execute any and all documents and to
furnish any and all information and otherwise to take all actions which
may be reasonably necessary in the discretion of the Fund's officers in
connection with the qualification of Shares for sale in such states as you
may designate to the Fund and the Fund may approve, and the Fund agrees to
pay all expenses which may be incurred in connection with such
qualification.
1.6 The Fund shall furnish you from time to time for use in
connection with the sale of Shares, such information with respect to the
Fund and the Shares as you may reasonably request. The Fund also shall
furnish you upon request with: (a) annual audited reports of the Fund's
books and accounts made by independent public accountants regularly
retained by the Fund, (b) semi-annual reports with respect to the Fund
prepared by the Fund, and (c) from time to time such additional
information regarding the Fund's financial condition as you may reasonably
request. The Fund authorizes you to use any prospectus, in the form
furnished to you by the Fund from time to time, in connection with the
sale of Shares.
1.7 No Shares shall be offered and no orders for the purchase
or sale of Shares shall be accepted by the Fund if and so long as the
effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the
provisions of the Securities Act of 1933, as amended, or if and so long as
current prospectuses as required by Section 10 of said Act, as amended,
are not on file with the Securities and Exchange Commission; provided,
however, that nothing contained in this paragraph 1.7 shall in any way
restrict or have an application to or bearing upon the Fund's obligation
to redeem Shares from any shareholder in accordance with the provisions of
the Fund's prospectus or Articles of Incorporation.
2. Term
2. This Agreement shall become effective as of the date hereof
and, unless sooner terminated, shall continue until March 2, 1997, and
thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by
(i) the Fund's Board of Directors or (ii) the vote of a majority (as
defined in the Investment Company Act of 1940) of the Fund's outstanding
Shares, provided that in either event its continuance also is approved by
a majority of the Fund's directors who are not "interested persons" (as
defined in said Act) of any party to this agreement, by vote cast in
person at a meeting called for the purpose of voting on such approval.
This Agreement is terminable without penalty, on not less than 60 days'
notice, by the Fund's Board of Directors, by vote of the holders of a
majority (as defined in said Act) of the Fund's outstanding Shares, or by
you. This Agreement will also terminate automatically in the event of its
assignment (as defined in said Act).
Very truly yours,
THE HENNESSY FUNDS, INC.
By: _________________________
President
Accepted:
THE HENNESSY MANAGEMENT CO., L.P.
By: Edward J. Hennessy, Incorporated,
General Partner
By: ____________________________
President
EXHIBIT 15.2
DISTRIBUTION AGREEMENT
AGREEMENT made this 2nd day of March, 1996 between The Hennessy
Management Co., L.P., a California limited partnership (hereinafter called
the "Adviser"), and Edward J. Hennessy, Incorporated, a California
corporation (hereinafter called the "Distributor").
W I T N E S S E T H;
WHEREAS, the Adviser is registered as an investment adviser
under the Investment Advisers Act of 1940 and serves as investment adviser
to The Hennessy Funds, Inc. (the "Fund"), an open-end management
investment company under the Investment Company Act of 1940;
WHEREAS, the Adviser has been authorized by the Fund to retain a
distributor for the shares of the Fund's Common Stock (the "Shares")
pursuant to the Fund's Service and Distribution Plan (the "Plan") under
the Investment Company Act of 1940;
WHEREAS, the Distributor is a registered broker-dealer under
state and federal laws and regulations and is a member of the National
Association of Securities Dealers, Inc.; and
WHEREAS, the Adviser desires to retain the Distributor as the
distributor of the Shares.
NOW, THEREFORE, the Adviser and Distributor mutually agree and
promise as follows:
1. Appointment of Distributor.
The Adviser hereby appoints the Distributor as the distributor
of the Shares in jurisdictions wherein the Shares may legally be offered
for sale.
2. Acceptance; Services of Distributor.
The Distributor hereby accepts appointment as distributor for
the Shares and agrees that it will use its best efforts with reasonable
promptness to sell such part of the authorized Shares remaining unissued
as from time to time shall be effectively registered under the Securities
Act of 1933 at prices determined as hereinafter provided and on terms
hereinafter set forth.
3. Manner of Sale; Compliance with Securities Laws and
Regulations.
a. The Distributor shall sell Shares to prospective
purchasers in such manner, not inconsistent with the provisions hereof and
the then effective Registration Statement of the Fund under the Securities
Act of 1933 (and then current prospectus and statement of additional
information). The Distributor shall cause subscriptions for Shares to be
transmitted to the Fund's custodian in accordance with the Share Purchase
Application then in force for the purchase of Shares. All such Share
Purchase Applications are subject to acceptance or rejection by the Fund.
Shares are to be sold for cash, payable at the time the Share Purchase
Application and payment for such Shares are received by the Fund's
custodian.
b. The Adviser will furnish to the Distributor from time
to time such information with respect to the Fund and its Shares as the
Distributor may reasonably request for use in connection with the sale of
the Shares. The Distributor agrees that it will not use or distribute any
statements, other than those contained in the Fund's current prospectus
and statement of additional information, except such supplemental
literature or advertising as shall be lawful under federal and state
securities laws and regulations, and that shall have been approved by the
Fund.
c. In selling the Shares, the Distributor will in all
respects conform to the requirements of all state and federal laws, rules
and regulations and the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and will indemnify and hold harmless the Fund
and each person who has been, is or may hereafter be a director or officer
of the Fund from any damage or expense on account of any wrongful act by
the Distributor or any employee, representative or agent of the
Distributor. The term "expense" includes amounts paid in satisfaction of
judgments or in settlement.
4. Price of Shares.
All Shares offered for sale or sold by the Distributor shall be
sold at the net asset value per share as determined in the manner provided
in the Fund's Registration Statement and then current prospectus and
statement of additional information.
5. Registration of Shares and Distributor.
a. The Adviser agrees that the Fund will use its best
efforts to keep effectively registered under the Securities Act for sale
as herein contemplated the Shares.
b. The Adviser agrees that the Fund will execute any and
all documents and furnish any and all information which may be reasonably
necessary in connection with the qualification of the Shares for sale in
such states as the Distributor may reasonably request (it being understood
that the Fund shall not be required without its consent to comply with any
requirement which in the Fund's opinion is unduly burdensome).
c. Notwithstanding any other provision hereof, the
Distributor agrees that the Fund may terminate, suspend or withdraw the
offering of Shares whenever, in its sole discretion, it deems such action
to be desirable.
6. Expenses; Compensation of Distributor.
a. The Adviser agrees that the Fund will pay or cause to
be paid expenses (including the fees and disbursements of its own counsel)
of any registration of the Shares under the Securities Act of 1933,
expenses of qualifying or continuing the qualification of the Shares for
sale under the laws of such states as may be designated by the
Distributor under the conditions herein specified, and expenses incident
to the issuance of Shares, such as the cost of share certificates, issue
taxes and fees of the transfer agent. The Adviser will pay all other
expenses incident to the sale and distribution of the Shares issued or
sold hereunder, including, without limiting the generality of the
foregoing, all (a) expenses of printing and distributing or disseminating
any other literature, advertising and selling aids in connection with such
offering of the Shares for sale (except that such expenses shall not
include expenses incurred by the Fund in connection with the preparation,
printing and distribution of any report or other communication to holders
of Shares in their capacity as such) and (b) expenses of advertising in
connection with such offering.
b. The Adviser shall pay a fee equal to 1% of the net
asset value of all Shares sold other than Shares sold pursuant to the
reinvestment of dividends. The Distributor acknowledges that such
obligation is solely the obligation of the Adviser and not the obligation
of the Fund. If any Shares are redeemed within one month after the date
of original purchase, the Distributor shall repay to the Adviser the fee
earned with respect to the original sale of such Shares; provided,
however, that such fees shall not be required to be repaid in the event of
death or disability of the shareholder. In determining whether the
Distributor is required to repay fees with respect to a redemption of less
than all of a shareholder's Shares, Shares which have been held for one
month will be considered to have been redeemed first and then other Shares
in the order purchased.
7. Duration and Termination.
a. This Agreement shall become effective on March 2, 1996
and shall continue in effect until March 2, 1997, and shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually by (i) the Fund's Board of
Directors or (ii) the vote of a majority (as defined in the Investment
Company Act of 1940) of the Fund's outstanding Shares, provided that in
either event its continuance is also approved by a majority of the Fund's
directors who are not "interested persons" (as defined in said Act) of any
party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval.
b. Notwithstanding whatever may be provided herein to the
contrary, this Agreement may be terminated at any time, without payment of
any penalty, by the Fund's Board of Directors, or by vote of the holders
of a majority (as defined in the Investment Company Act of 1940) of the
Fund's outstanding Shares, or by the Distributor, in each case, upon sixty
(60) days' written notice to the other party and shall terminate
automatically in the event of its assignment (as defined in said Act).
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
THE HENNESSY MANAGEMENT CO., L.P.
By: Edward J. Hennessy, Incorporated
General Partner
By: _________________________________
President
THE HENNESSY FUNDS, INC.
By: __________________________________
President
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> FEB-20-1996
<PERIOD-END> FEB-20-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 30,900
<OTHER-ITEMS-ASSETS> 100,000
<TOTAL-ASSETS> 130,900
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,900
<TOTAL-LIABILITIES> 30,900
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,000
<SHARES-COMMON-STOCK> 10,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 100,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
